In the face of the China slowdown, the International Monetary Fund has cut the world economic growth to 3.4 per cent this year, but has retained its forecast for India at 7.5 per cent for both 2016 and 2017.
Updating its World Economic Outlook projections released last October, the IMF said on Tuesday that India and parts of emerging Asia are “bright spots, projected to grow at a robust pace”. It put India’s growth in 2015 at 7.3 per cent.
Speaking of a weak and uneven pickup in global growth, the key risks highlighted by the IMF report include the China slowdown, stronger dollar, geopolitical tensions and renewed global risk aversion.
China, for long the driver of global growth, is projected to grow by just 6.3 per cent this year and 6 per cent next year. China ended 2015 by growing at 6.9 per cent, said to be its slowest in a quarter century.
For the emerging economies as a whole, the IMF has projected a mixed growth scenario. If India and parts of emerging Asia are the bright spots, it sees growth contracting again in latin America and the Caribbean, reflecting the recession in Brazil and economic stress elsewhere in the region.
“The pickup in global growth is weak and uneven across economies, with risks now tilted toward the emerging markets,” the IMF update said, noting that while the advanced economies will see a modest recovery, the emerging market and developing economies “face the new reality of slower growth”.
In the United States, overall activity remains robust, supported as it is by the still-easy financial conditions and strengthening housing and labour markets, the update document said, but at the same time spoke of challenges stemming from the strength of the dollar, thereby causing US manufacturing sector to shrink marginally.
For the global economy as a whole, it’s going to be a year of great challenges, IMF Economic Counsellor Maurice Obstfeld said. He has asked policymakers to think not only about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects.
“Those long-term actions will actually have positive effects in the short run by increasing confidence and increasing people’s faith in the future,” he said.
IMF chief Christine lagarde noted in a recent speech that the emerging economies are confronting a new reality of lower growth, with cyclical and structural forces undermining the traditional growth paradigm. Growth forecasts for most emerging market and developing economies reveal a slower pickup than previously predicted.
Dwelling on the risk factors prominent for the emerging economies, the IMF said “the risks relate mostly to the ongoing adjustments of the global economy, namely China’s rebalancing, lower commodity prices, and the prospects for the progressive increase in interest rates in the United States”.
A sharper-than-expected slowdown in China could bring more international spillovers through trade, commodity prices and waning confidence, while a further appreciation of the dollar and tighter global financing conditions could raise vulnerabilities in emerging markets.
The IMF also noted that an escalation of ongoing geopolitical tensions in a number of regions could affect confidence and disrupt global trade, financial flows and tourism.
“All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility,” said Obstfeld, adding: “We may be in for a bumpy ride this year, especially in the emerging and developing world.”